The Dynamic between Municipal Revenue Sources and the State-Local Relationship in New England The Dynamic between Municipal Revenue Sources and the State-Local Relationship in New England

By Richard F. Dye

This working paper was written for the New England Public Policy Center's third annual conference: "The Dynamic between Municipal Revenue Sources and the State-Local Relationship in New England" . It relies on data from the U.S. Census to examine the dynamic between municipal revenues and the state-local relationship in New England. The analysis shows that-compared with the nation as a whole-municipal governments in New England rely very heavily on the property tax. They also have limited or no access to local-option revenues such as sales taxes, and they rely less on fees and other nontax sources.

Although some research has shown that the local property tax can help counter fluctuations in state aid, Massachusetts, Rhode Island, and Maine all limit the percent by which local governments may increase their property tax collections from one year to the next. Municipalities in these states are more vulnerable to changes in state aid, and more bound by constraints on other revenue sources.

New England states and municipal governments will face enormous fiscal pressures as their populations age dramatically and they face higher pension and health care costs. This analysis suggests the need for policymakers to consider new local revenue sources and state aid formulas.

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